Bloomberg News

Dark Days for the Man Who Would Save Barclays

June 27, 2014

Antony Jenkins

The first allegations of new misconduct since Anthony Jenkins was named chief executive officer of the London-based bank in August 2012 mark a setback in his efforts to break with the past and sent shares plunging the most since he took over. Photographer: Chris Ratcliffe/Bloomberg

Antony Jenkins, promoted to run Barclays Plc (BARC) after the Libor scandal, pledged to overhaul the bank’s culture, committing to values of integrity and respect. Allegations of fraud on his watch are undermining his plan.

Barclays lied to customers and masked the role of high-frequency traders as it sought to boost revenue at one of Wall Street’s largest private trading venues, New York Attorney General Eric Schneiderman said in a civil complaint filed June 25. He cited a pattern of misleading and false representations that went on as recently as April.

The first allegations of new misconduct since Jenkins was named chief executive officer of the London-based bank in August 2012 mark a setback in his efforts to break with the past and sent shares plunging the most since he took over. A hit to the reputation of the Barclays LX dark pool also would hinder Jenkins’s effort to turn around the firm’s investment bank by focusing on equities.

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“He’s lost some credibility,” said Colin McLean, founder and CEO of SVM Asset Management Ltd. in Edinburgh, which oversees about $830 million and holds Barclays shares. “He hasn’t achieved the cultural change he’s talked about. A lot of activities will come under scrutiny.”

‘Serious Charges’

Jenkins said in a memo to staff yesterday that the lawsuit represents “serious charges that allege a grave failure to live up to our values and to the culture at Barclays which we are trying to create.”

“I will not tolerate any circumstances in which our clients are lied to or misled, and any instances I discover will be dealt with severely,” the CEO said.

Mark Lane, a spokesman for Barclays, said the bank is cooperating with Schneiderman’s office and is examining the matter internally.

Jenkins vowed to change the culture of a bank that paid a record 290 million-pound ($494 million) fine in 2012 after admitting it submitted false London interbank offered rates, and $44 million to settle claims that a trader tried to manipulate the price of gold the day after the Libor settlement. Barclays has set aside more than 1.6 billion pounds to compensate customers sold insurance they didn’t need or interest-rate swaps that lost them money.

Dark Pools

Probes into private-trading venues known as dark pools and banks’ relationships with high-frequency trading firms could lead to $163 million in penalties and legal costs for Barclays, Credit Suisse Group AG analysts estimated in a note to clients June 4, before Schneiderman’s lawsuit.

“Despite the fact this was a small part of the business, any fine could be grossed up,” said Edmund Salvesen, an analyst at Brewin Dolphin in London.

Barclays shares fell 6.5 percent yesterday, the biggest decline since June 2012. They rose 0.5 percent today to close to 216.05 pence, valuing the bank at 35.5 billion pounds.

The “larger issue is the business risk, customer disengagement given that dark-pool trading is only one part of Barclays’s electronic equity offering,” Jefferies International Ltd. analysts led by Joseph Dickerson wrote in a note to clients today. Equities at Barclays were about 26 percent of the “core” investment bank’s 8.7 billion-pound revenue base in 2013, they said, adding the suit may prompt calls for senior management exits.

Equities Trading

The Barclays LX dark pool, part of the firm’s equities business, handles about 282 million shares weekly, making it the second-largest U.S. dark pool behind only Credit Suisse’s Crossfinder, according to data from the Financial Industry Regulatory Authority. Each day, more than 6 billion shares change hands in the U.S. stock market, according to data compiled by Bloomberg.

Barclays temporarily removed Bill White from his role overseeing electronic equities trading to focus on the bank’s response to the lawsuit, said a person briefed on the matter who requested anonymity because the decision hasn’t been announced publicly. White isn’t being suspended, the person said.

Barclays estimated that expanding the trading platform could generate as much as $50 million a year, according to Schneiderman’s complaint. Starting in 2011, Barclays hoarded orders for stocks and assured investors they were protected from high-frequency firms, while simultaneously aiding predatory tactics, Schneiderman said.

‘Tainted’ Franchise

“It’s yet another problem that was avoidable, and is damaging the reputation of Barclays, of the City and of the country,” said John Mann, an opposition Labour Party lawmaker and member of Parliament’s Treasury Committee.

The investigation may hinder Barclays’s effort to expand in equities as it revamps its investment bank and as income from fixed-income trading declines. While income at the equities division, which also services hedge funds, fell 5 percent in the first quarter, it outperformed the larger fixed-income, commodities and currencies arm, whose revenue slid 41 percent.

“The equities franchise has been tainted,” Frederic Ponzo, managing partner of GreySpark Partners, a London-based consulting firm that audits dark pools for conflicts of interest, said by telephone. “They’re betting the house on equities, and the franchise is not as clean as it ought to be.”

Some money managers and brokers began shunning Barclays’s dark pool after the allegations emerged. Voya Financial Inc. (VOYA:US) stopped sending orders to the LX venue, as did Sanford C. Bernstein & Co., Deutsche Bank AG and Royal Bank of Canada, according to people with knowledge of the matter.

Taking Responsibility

“Equity execution is not a high margin business,” Brad Hintz, an analyst at Sanford C. Bernstein & Co., said by e-mail. “But it is the core, the bedrock on which all the rest is based.”

If a bank loses trading business, it’s unlikely that clients will do derivatives trades with the firm and it may lose share in underwriting stock offerings, said Hintz.

Jenkins “has ultimately got to take responsibility,” said Gary Greenwood, an analyst at Shore Capital Group Ltd. in Liverpool, England. “It’s not like he’s been there a month. These are huge, complex organizations, though, and it’ll take him a long time to get under the skin of all parts of it.”

Jenkins, 52, who studied politics, philosophy and economics at Oxford University, had been CEO of the Barclaycard credit-card unit since 2006 before he was named head of retail banking in November 2009.

‘New Course’

In February 2013, six months after taking over as CEO, Jenkins said the bank would commit to the five values of respect, integrity, service, excellence and stewardship.

“There will be no going back to the old ways of doing things,” he said at the time. “We get it. We are changing the way we do business, we are changing the type of business we do and we are setting out a new course.”

Jenkins promised to cut costs and jobs to return the lender to profit. He also set out to dial back the investment bank that former CEO Robert Diamond built in a 15-year expansion of Barclays’s fixed-income business, capped by the firm’s 2008 purchase of Lehman Brothers Holdings Inc.’s North American operations out of bankruptcy. Diamond left in July 2012, days after the Libor fine, having lost the confidence of the governor of the Bank of England and the chairman of the financial regulator.

‘Demonstrable Damage’

Jenkins hired Rothschild Vice Chairman Anthony Salz to lead a review of Barclays’s culture. In April 2013, Salz found the firm paid bonuses “incapable of justification” and said some bankers “seemed to lose a sense of proportion and humility.”

Less than a year later, John Sunderland, the then-head of remuneration, said the bank’s lack of “pay competitiveness was beginning to cause demonstrable damage” to its business, especially in the U.S.

Shareholders weren’t pleased. Demands for higher pay, especially from former Lehman Brothers investment bankers, and dwindling returns at the securities unit led to investor pressure for a deeper reorganization.

Last month, after reporting a 49 percent drop in first-quarter profit, Jenkins announced a retreat from building a global bank and said he would eliminate a quarter of investment-banking staff. He said the firm would shrink its fixed-income business amid a structural decline and a “weak” investment-banking revenue outlook.

The focus on its dark pool “highlights another problem area for Barclays,” said Christopher Wheeler, an analyst at Mediobanca SpA in London. “The salient point is what this means for their equity business, as Barclays seeks to rebuild a smaller investment bank with equities at its core.”

‘Enormous Distraction’

“As they try to rebuild, they need the support of the most profitable businesses,” and the U.S. suit is “an enormous distraction,” Wheeler said.

Jenkins is appointing new managers amid a wave of senior departures in what he has described as a “generational shift.” Executives who have left in recent months include Lehman veteran Hugh “Skip” McGee, the firm’s most senior banker in the U.S.; Robert Morrice, chairman of the Asia-Pacific region; and investment-banking chairman Ros Stephenson.

It may take a decade to rebuild trust in the bank after the series of scandals that have tarred its reputation, Jenkins warned in December.

“Barclays is a risk-taking culture that has resulted from years of putting profit before people,” Mark Williams, author of “Uncontrolled Risk,” a book on the rise and collapse of Lehman Brothers, and an executive-in-residence at Boston University, said by e-mail.

“No one CEO can correct the level of structural and cultural changes that need to occur,” Williams said. “Real change at Barclays, including a higher ethical standard, will require a combination of regulator, legal, shareholder and management action.”

To contact the reporters on this story: Elisa Martinuzzi in Milan at emartinuzzi@bloomberg.net; Richard Partington in London at rpartington@bloomberg.net

To contact the editors responsible for this story: Edward Evans at eevans3@bloomberg.net Keith Campbell, Robert Friedman


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